Tough times ahead for Australian Dairy industry

Written by: Duncan B. on 16 April 2023

                                                                  Photo: Rene Groeneveld

Australia’s dairy farmers are facing tough times in the coming year. They are anxiously waiting to see what price dairy processors will offer them for their milk. They are hoping for at least $9 per kilo (milk solids) to help them cope with the rapidly rising costs of inputs such as electricity, fuel and water in irrigation areas.

Processors must make an initial price offer to farmers by June 1. The big three dairy processors in Australia are Canadian-owned Saputo (Devondale, Cheer, Cracker Barrel and other brands), New Zealand-owned Fonterra (Western Star and other brands) and Australian-owned Bega (Bega Cheese, Vegemite and other brands.)

This is happening against a background of uncertainty.  Since April last year, dairy commodity prices have fallen by about 35% to their lowest since November 2020. Prices for Australia’s biggest dairy export earners have fallen, with cheddar down 37% and skim milk powder down 42%.  Butter prices have also fallen.

Many dairy farmers are leaving farming all together or switching to other types of farming. Over the last decade, Queensland lost 270 dairy farms and NSW lost 500. Many Victorian dairy farmers have also quit.

The national dairy herd has fallen dramatically since 2000 when the industry was deregulated. The Victorian herd went from 1.37 million in 2000 to 895,000 in 2020. NSW went from 289,000 in 2000 to 145,000 in 2020. Queensland went from 105,000 in 2000 to 65,000 in 2020. The national milk pool has fallen from 11 billion litres in 2001 to 8 billion litres today, with a further decline expected.

Dairy processors have reduced the production of whole milk powder by 21% and skim milk powder by 13.7%, and are putting more milk into cheese production. They are hoping to sell more cheese in the domestic market, instead of the export market where prices have fallen by 37%. Saputo reacted to the downturn by closing its plant at Maffra (Vic) and cutting milk powder production at Leongatha (Vic.)

Farmers and processors are hoping for an increase in demand from China for Australian dairy products. China’s demand for dairy products has been weak this year and China built up a large stockpile of powdered milk in 2022 during COVID lockdowns. China is encouraging increased consumption of dairy products among its people, and the dairy industry is hoping this will be reflected in increased Chinese demand for Australian dairy products later in the year.

In a recent development in the dairy industry, Coles is to buy two milk processing plants from Saputo for $105 million dollars. The two plants, one in Sydney and one in Melbourne process about 225 million litres of milk per year, 80% of which goes to Coles home brand milk. It appears that Coles is moving to guarantee its milk production in case Saputo sold the processing plants to someone else. Coles has also been advertising in the rural press seeking to recruit dairy farmers as direct suppliers of milk to Coles. If Coles own the dairy farmers and the milk processing, they will be able to make even bigger profits from selling their home brand milk products.

As we have said many times, the only hope for small farmers lies in unity with the working class and struggle for an independent Australia.

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